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Should you be planning for an IPO?

Should you be planning for an IPO? Photo by Ruben Sukatendel on Unsplash

Most people are under the impression that IPOs and public listings on stock exchanges are only for large limited liability, multi-national conglomerates.

Detik recently reported that 54-companies conducted Initial Public Offerings (IPOs) on the Indonesia Stock Exchange (PT Bursa Efek Indonesia, BEI) in 2021with a funding value of IDR 62.61 trillion. And thirty more are lined up for 2022. That’s a serious amount of money in anybody’s books, but the government is also encouraging Micro, Small and Medium Enterprises (MSMEs) with fewer financial resources to also go public.

Ridwan Jasin Zachrie, CFO of Seven Stones Indonesia and one of Indonesia’s most reputable financial authorities, supports this move saying that “companies with an asset value of just IDR 5-billion with a good prospect for growth, either in an organic or un-organic way, can start the journey to go public in a concrete time frame, starting with corporate actions such as pre-IPO and later apply to make public offerings.” And that’s a paradigm shift, not just because of the huge potential to obtain long-term sources of funding, but also because of the opportunities that present themselves.

And the opportunities are growing – The Jakarta Post are reporting that the Indonesia Stock Exchange has “launched two new indexes that are based on environmental, social and governance (ESG) scores, catering to growing investor interest in the performance of companies beyond their corporate financials.”

So what’s an IPO?

Investopedia defines an Initial Public Offering, as the “process of offering shares of a private corporation to the public in a new stock issuance,” which then allows a company to raise capital from public investors. “The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment as it typically includes a share premium for current private investors. Meanwhile, it also allows public investors to participate in the offering.”

It’s worth noting here, that there are risks involved, both for investors and the company.  Zachrie recently wrote in a recent blog on the Seven Stones Indonesia website that “risk is a condition that emerges due to uncertainties. In the business world, uncertainties do occur and should be expected and that’s why it’s crucial for companies to better understand how to manage them in such a way that leads to beneficial future outcomes.”

What are the benefits of an IPO?

So, you’ve identified the potential risks and you still want to go public or invest in a small-medium sized business that’s announced its plans to go public; the numbers look good and the future looks promising. Exciting times!  What should you do? Zachrie believes that based on his experience as a practitioner and as someone often referred to in a number of corporate sources on the matter, that “an IPO provides access to markets for additional capital with a relatively low cost. There are other benefits too,” he explains. “An IPO can also accelerate a company’s growth, have tax incentives and increase the company’s value as well as improving a company’s reputation and that’s something that should appeal to a range of MSMEs.”

VOI are reporting “the Ministry of Finance will accelerate the necessary regulations, including synchronizing regulations,” to support this. “The Special Staff of the Minister of Finance for Strategic Communications, Yustinus Prastowo, said that this step was in line with President Joko Widodo’s direction, so that MSMEs that meet the requirements can enter the capital market … and develop. However, it does need careful planning so that later it does not become a burden to MSMEs. This scenario is very possible to do. It should be a best practice that is applied in order to help MSMEs. It needs regulation, it needs synchronization, coordination, and harmonization so that it really is not a burden.”

IPOs are the new Gold Rush

Regional newswires, including Nikkei Asia are buzzing about how BEI is easing rules to draw more IPOs, especially for tech listings, in what’s being described as the next ‘Gold Rush.’ In fact Indonesia is planning to list 14 state-owned companies on the stock exchange by 2023 “to both improve management and replenish public coffers drained by the coronavirus response,” say Nikkei Asia.

The Financial Times recently commented about Indonesia’s booming potential, saying that “in a country where about half of the 270-million population remains unbanked, a million people invested in stocks for the first time this year, according to the Indonesia Stock Exchange. Retail investors accounted for 59-percent of trading value, it said, compared with only 37-percent in 2019 … (but) while the exchange has always wanted more retail investors to increase liquidity, the surge poses risks to the exchange — and to popular new trading platforms — as they try to balance nurturing the country’s capital markets with educating novice investors about the risks involved in trading.”

And that’s where Seven Stones Indonesia and our IPO Portfolio Team of Ridwan Zachrie and Umar Abdullah can help; both prominent practitioners in the Capital Markets in the region with extensive experience and impressive success, who can advise and guide you through the entire process. We consider our clients as partners and we believe it’s our mission to help our partners grow and be profitable. This is the motivation behind our most recent initiative to encourage PMA companies established in Indonesia to have a long-term goal to go public. And we believe our timing is perfect!

Here’s how we can help you go public

A successful IPO journey is a process, a story, which begins with us walking you through the Pre-IPO Phase. This is basically a restructuring phase, which sets the groundwork for becoming publicly-traded and encourages you to ask some serious questions of your business and in so doing, adds a great deal of value to your company. For example:

  • Transparency of information to the public – can your clients trust you?
  • Dilution of control and reduced autonomy – are you doing what’s best for long-term growth?
  • Pressure for (short term) performance – are you reaching your targets?
  • Ongoing expenses to comply with listed company obligations – are your systems in place?
  • Financial readiness – have you built a sustainable business position?
  • Growth story – have you established a robust and strong business plan?
  • Governance and accounting – have you established a sustainable governance and financial reporting infrastructure?
  • Structure – have you achieved an optimum shareholding and corporate structure?
  • Tax – have you obtained the most efficient tax planning and identified historical tax health?

If you can answer these questions and address any outstanding issues, we will support you in conducting the all-important IPO Execution Phase, which dives deeper into your company’s structure, financials and positioning to achieve goals geared to enhance the initial valuation of your company and maximise investor confidence and credibility.

But we don’t stop there. Remember, our mission is to be your partner in growth and that means we’re also there for your Post-IPO Phase, to help you keep your company on track not just to meet expectations but to beat them!

If you’d like more information on IPOs or want to discuss how your company can go public, please feel free to contact Ridwan via [email protected]

By Ridwan Jasin Zachrie (CFO, Seven Stones Indonesia) and Andrzej Barski (Co-Founder, Seven Stones Indonesia)

Sources: Nikkei Asia, Jakarta Globe, Media Indonesia, Investopedia, Financial Times, VOI, Detik, The Jakarta Post, Gapura Bali

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